François Masquelier (ATEL): What A TMS is and what a TMS is not…
A TMS (i.e. Treasury Management System) is a software tool, in SaaS mode, designed to help company treasurers manage their day-to-day treasury / liquidities more efficiently and more automatically. But the term is often misused, and the scope overestimated or exaggerated. Let's ask ourselves what it is and what it isn't (in general - with some rare exceptions). This is what this document sets out to explain.
What do we mean by “TMS”?
A Treasury Management System (TMS) is a software application that automates the process of managing a company’s financial operations. It assists companies in handling various financial activities, including cash flow, assets, and (short-term) investments, by automating certain tasks. A TMS is commonly used to maintain financial security, mitigate operating risks, and minimize reputational risk. It is a repository of all financial transactions, interfaced with the ERP(s) and with bank connectivity solution. TMS and ERP are the two IT backbones of a finance organization. In more detail, treasury management involves managing a company’s daily treasury operations and making larger-scale financial decisions.
TMSs encompass activities such as:
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Governance over liquidity: Ensuring the availability of sufficient cash to meet operational needs.
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Credit lines establishment and maintenance: Managing credit facilities with financial institutions.
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Optimizing investment returns: Strategically investing surplus funds.
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Determining possible funds utilization: how much to be invested in short-term investment products and interface with execution / dealing platforms.
A TMS streamlines these processes by providing partial automation and by creating one single source of truth for all treasury operations. It offers better visibility into cash and liquidity, enhances control over bank accounts, ensures compliance, and facilitates efficient management of financial transactions. Decision-makers can access real-time financial information, aiding critical business decisions. Additionally, a TMS simplifies tasks like reporting and (short-term) cash forecasting (i.e. 13 weeks). It may also include features for automating payments, improving reconciliations, accounting postings and financial reporting, as well as securing transactions.
Additional benefits of a TMS (non-comprehensive list)
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Streamlined ledgering: Automating entries in the company’s General Ledger.
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Cash pooling management: Handling notional and physical cash pools, intercompany positions, interest calculations (i.e. scales of interest), and transfer pricing (TP) reporting.
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Payment automation: Securely automating and scheduling payments, minimizing human error and risk.
For instance, modern treasury’s payments product offers custom payment controls, permissions, and approvals, ensuring secure payment initiation. It also simplifies reconciliation by automatically matching payments with corresponding bank transactions.
A TMS in a nutshell
How to define a “TMS”? - Avoiding over-expectations.
A Treasury Management System (TMS) is a software application that allows companies to process cash flow, manage banking relationships and enhance the value of their cash flow. A Treasury Management System can help companies manage their financial assets, liabilities, and bank accounts through integration with third-party applications (e.g. ERP). A TMS provides (real-time) visibility into cash positions, enables better decision-making, and improves overall operational efficiency. The system includes a range of features and functionalities to help better managing cash and liquidity, as well as financial risks, and payment processing. Treasury management is the process of managing an organization’s liquidity, money market instruments, banking, concentration, and disbursement activities. The goal of treasury management is to constantly monitor cash inflows and outflows to optimize the company’s liquidity position. A TMS help managing risks and liquidities but doesn’t manage them (automatically) and it is not a decision-making solution. A treasury management system is a powerful tool for MNC’s looking to streamline their treasury operations, manage financial risk, and improve cash management. By providing (real-time) visibility into cash positions, automating routine processes, and providing reports for managing financial risk, a TMS enables treasurers to make informed decisions and drive business growth.
Why would a corporation need a Treasury Management System?
A treasury management system provides improved efficiency. By securing payments, it reduces errors (for example by eliminating manual data entry, as well as automating reconciliation processes for accounts payable systems). A good system should even provide real-time information about everything from cash balances down through individual purchase orders, so companies know exactly their net positions. It is an important tool for helping to achieve regulatory compliance (for reducing the risk of fines and reputational damage). A TMS simply aggregates data from multiple sources, including bank accounts, payments, and investment portfolios, providing a complete and accurate picture of a company’s cash position. This information enables treasurers to make informed decisions about cash management and investment strategies, reducing the risk of cash shortfalls and minimizing borrowing costs. It also provides reports and tools for managing financial risks, including foreign exchange risk, interest rate risk, and credit risk. The system enables treasurers to monitor these risks. Usually it includes different modules, each focusing on an important aspect of finance: enabling Cash Management; producing Short-Term Cash Forecasting; facilitating Risk Monitoring; ensuring Liquidity Management; potentially offering Bank Account Management features; enabling In-House Banking organization; from time to time, offering Multilateral Netting functionalities; producing Accounting Postings for financial transactions; etc.…. It is a best practice in corporate treasury to implement a TMS for the day-to-day operations.
What a TMS is not.
The best proof that TMS’s do not cover every task of treasury management can be found in the Appstore approach of some leading players like SAP with its famous BTP platform. If they were comprehensive, it won’t be necessary to complement the suites. Furthermore, the Treasury Tech Map (www.treasurymap.com) is another evidence that the landscape is much more complex and that there is no solution fitting all requirements and categories, even the largest. It explains why we need add-ons and satellite solutions to complete the TMS suite. To avoid frustrations, it is important to know what it enables and what it cannot do. A TMS remains an increasingly standard tool, especially since the advent of the SaaS mode (i.e. Software as a Service) and all solutions are in the cloud, without exception. This standardization means that you must adapt to the machine and not the other way round. It's a bit like ready-to-wear for the treasurer. If it fits, great! If not, it's up to you to adapt to fit in. This 'one fits all' approach has robbed them of their specific characteristics. The TMS is a repository of financial transactions that can be used to manage and produce financial and accounting reports. But it is not a 'decision-making tool'. At most, it provides the information needed to make decisions. A level or a laser enables the carpenter to plan on site, but it is only a decision-making tool without drawing it. That is the first point about what it is not. As it does not do everything, it is accompanied by options or accessories, like a car, to equip it to meet needs (via modules, via other external solutions, via fintech's, etc.). A TMS is not a banking connectivity tool, any more than it is a foreign exchange or commodities exposure management tool. It manages the instruments used to hedge the underlying risks, but not the exposures. TMSs list, report and communicate information. But they do not (yet) suggest decisions and actions to be taken (or only very few and very basic ones). For example, even when accompanied by an FX platform (e.g. 360T, Currenext, etc.) or MMFs (e.g. ICD, Morgan Money, CashMetrix, etc.), it does not process hedges or products automatically. The management of tools remains a human task. The TMS does not automate investments, payments, hedges, etc. It remains a basic tool to be managed by the treasurer. Let's not forget that... Eventually, Generative AI, the metaverse, robotization, etc. may make it possible, in couple of years, to go to the next level and execute automatically. This explains the need for tools such as KANTOX for foreign exchange risk management. Even a tool for analyzing bank charges is not a decision-making tool. It produces reports that may lead them to decide to change bank or renegotiate. There are dozens of similar examples in treasury management.
Example of TMS versus Currency Management Automation (CMA):
What a TMS is not, should not remove its major utility for treasurers
Some treasurers forget to explain the limits of the TMS solution to their management (i.e. CFO) and IT management (i.e. CIO/CTO), which consequently drives to misunderstanding from these stakeholders when treasury requires additional modules or add-ons to complement the (expensive) TMS suite. The lack of communication may imply frustration and misunderstanding from the C-level. It explains why understanding what a TMS is and what it isn't helps to avoid expectations that are too high, disappointment on the part of IT or CFO colleagues, frustration, disappointment, disillusion, etc. That's why knowing what you're going to buy, and the scope covered helps to maximize the choice without creating disappointed expectations. What the TMS is not shouldn’t detract from its usefulness. However, if you know from the outset what the shortcomings of a TMS are and what it will not be able to do (even if you opt for all the existing modules proposed by the IT vendor), you will be able to plan from the outset of the project to digitize and transform treasury management the ancillary tools needed to complement the central tool and perform the tasks that it cannot do. It is always advisable to plan from the outset of such a project what it will include, to avoid the misunderstanding of a CFO who claims to have thought that the TMS, like a kitchen robot, did everything in cash management and treasury. TMS helps managing risks but doesn’t manage financial risks. It simply means that we need to know what we're committing to and avoid management over-expectations. A tool cannot do without its craftsman...
Disclaimer: This article was prepared by François Masquelier in his personal capacity. The opinion expressed in this article are the author’s own and do not necessarily reflect the view of the European Association of Corporate Treasurers (i.e., EACT).